[Congressional Record Volume 159, Number 46 (Tuesday, April 9, 2013)]
[Senate]
[Pages S2502-S2505]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mr. DURBIN (for himself, Mr. Blumenthal, Mrs. Boxer, Mr.
Merkley, and Mr. Whitehouse):
S. 673. A bill to amend the Truth in Lending Act to establish a
national usury rate for consumer credit transactions; to the Committee
on Banking, Housing, and Urban Affairs.
Mr. DURBIN. Mr. President, after the financial crisis of 2008 we
learned that predatory lending hurts more than just families who lost
money. Predatory
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lending can affect entire communities and often targets the most
vulnerable in our society--low-income families and seniors.
Under Wall Street reform we addressed predatory mortgage practices
and granted the Consumer Financial Protection Bureau the authority to
supervise nonbank lenders, including payday lenders. We know who these
payday folks are. I know them because their businesses are located a
few blocks from where I live in Springfield, IL, on Macarthur
Boulevard--title loans, payday loans. However, we failed to cap once
and for all the annual interest rate that predatory payday lenders can
charge for a loan.
In 2012 payday loan volume reached an estimated $45 billion for
storefront and online loans. This does not include deposit advance
loans that banks make to consumers every day.
If we look a bit deeper, we find that nearly 76 percent of payday
loans are made to pay off a previous payday loan. It is a vicious
cycle. Someone borrows some money, then they cannot pay it back with
high interest rates, and they borrow more--deeper and deeper in debt.
Fifty percent of payday borrowers ultimately default on their loans.
With numbers like these, we can only assume payday lenders' profit
depends on families rolling their payday loan over eight to nine
times--racking up new fees every single time.
Predatory lenders should not be allowed to pad their pockets with the
hard-earned money of families that are barely getting by. These are
families who are not even able to survive paycheck to paycheck.
That is why I am introducing the Protecting Consumers from
Unreasonable Credit Rates Act. I wish to thank my colleagues--Senators
Blumenthal, Boxer, Merkley, and Whitehouse--for their cosponsorship of
this bill and their commitment to protect consumers from predatory
lending practices.
This bill would establish a 36-percent annual interest rate cap for
all types of consumer credit--a cap that is supported by 100 years of
history according to a new report released by the National Consumer Law
Center.
That is the same Federal cap that is currently in place for loans
marketed to military servicemembers and their families.
Why would we protect military service families from predatory lending
and no one else? I will tell you why. We found out that many of them in
the military ran into financial difficulties from time to time, and the
payday lenders--the title loans and the rest of them--were camping out
outside of military facilities anxious to loan members of the military
the money they needed to get by until the next payday. Many of our
soldiers got so deeply in debt to payday loans they had to leave
military service. They just could not keep up with it. So we passed a
law that said we are going to protect military families from this
exploitation. Our soldiers and sailors, airmen and marines are worth
that much more to us that we are going to protect them.
Well, there is an obvious question: Why are we not protecting
everybody? If this kind of exploitation is wrong when it comes to
military families, why is it not wrong for the rest of America? It
surely is. We should expand the law that curbed payday, car title, and
tax refund lending around military bases to include all types of credit
for all borrowers. If a lender cannot make money on a 36-percent APR,
maybe the loan should not have been made in the first place.
Fifteen States and the District of Columbia have already enacted laws
that protect homeowners from high-cost loans, and 34 States and the
District of Colombia have limited annual interest rates to 36 percent
or less for one or more types of consumer credit. But there is a
problem with the State-by-State approach: Many of these State laws are
riddled with loopholes. Out-of-State lenders evade these State caps.
Cash-strapped customers are then subjected to 400 percent annual
interest rates for payday loans, on average, and 300 percent for car
title loans, on average--400 percent interest? Our bill would require
all lending to conform to the 36-percent APR limit, thereby eliminating
the loopholes that have allowed predatory practices to flourish in many
States around the country.
Let me be clear. I understand that sometimes families fall on hard
times. They need a loan to make ends meet. They are desperate. Most of
us have been there at one time or another in our lives. That is why I
have included in this bill the flexibility for responsible lenders to
replace payday loans with reasonably priced, small-dollar loan
alternatives. The bill allows lenders to exceed the 36-percent cap for
one-time application fees that cover the cost of setting up a new
customer account and a processing cost, such as late charges and
insufficient funds fees. I urge more institutions to offer small-dollar
loans with consumer protections, including rates below 36 percent.
We know it can be done because banks and credit unions--many of
them--are offering those loans.
I would also like to talk about a new type of payday lending--the
online payday loan. Senator Merkley of Oregon and Senator Tom Udall of
New Mexico are leading the effort to crack down on these types of
lenders who use the Internet to evade State law. Their bill, called the
Safe Lending Act, would address online payday lending, such as hiding
behind layers of anonymously registered Web sites and so-called lead
generators. The bill would allow consumers to cancel a debit and
prohibit payday lenders from circumventing State usury laws. We need
more effective enforcement on online payday lenders. The Safe Lending
Act would do it.
Another type of payday lending that I am afraid is on the rise is
bank payday lending. Several banks offer deposit advance loans, which
closely resemble the structure of payday loans, with up to 365 percent
interest rates and short-term balloon payments.
Earlier this year, Senators Blumenthal and I wrote a letter to the
Federal Reserve, OCC, and the FDIC urging them to prohibit banks from
offering predatory payday loans. Today, a petition signed by 157,000
Americans will be delivered to the same regulators calling on then to
ban banks from offering payday loan products. I hope they do.
My first mentor in politics was the late Senator Paul Douglas of
Illinois. He was a Ph.D. in economics who served here from 1948 to
1966. I met him at the end of his career when I was a college student.
He wrote:
Compound the camouflaging of credit by loading on all sorts
of extraneous fees, such as exorbitant fees for credit life
insurance, excessive fees for credit investigation, and all
sorts of loan processing fees which rightfully should be
included in the percentage rate statement so that any
percentage rate quoted is meaningless and deceptive.
Senator Douglas said that 50 years ago. The name of the fees may have
changed over time, but the goal of nickel-and-diming families out of
their hard-earned money, unfortunately, has not changed.
By instituting a 36-percent cap on annual interest rates, the
Protecting Consumers from Unreasonable Credit Rates Act would eliminate
products that are predatory by their nature. The bill is supported by
more than 40 consumer groups. They include Americans for Financial
Reform, the Center for Responsible Lending, the Consumer Federation of
America, and the National Consumer Law Center.
I ask unanimous consent to have printed in the Record a letter from
these organizations in support of this legislation.
April 9, 2013.
Re Protecting Consumers from Unreasonable Credit Rates
Hon. Richard J. Durbin,
Hart Senate Building,
Washington, DC.
Dear Senator Durbin: Thank you for introducing the
``Protecting Consumers from Unreasonable Credit Rates Act of
2013,'' which would extend the 36 percent usury APR cap for
military families enacted in the Military Lending Act of 2006
to all consumers. A fair rate cap will protect consumers and
curb abuses in the high-cost small dollar loan market. The 36
percent rate cap set by your legislation would permit
responsible lending to consumers with less-than-perfect
credit while restraining harmful terms.
Currently, consumers pay triple-digit rates for car title
and payday loans (including those offered at traditional
storefronts, online, and by banks). A large body of research
has demonstrated that these products are structured to create
a long-term debt trap that drains consumers' bank accounts.
Indeed, the lack of underwriting, high fees, short loan
terms, single balloon payment, and access to a borrower's
checking account
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as collateral ensure that most borrowers have no choice but
to take out additional loans to pay off the initial payday or
car title loan. A properly structured federal usury cap puts
all creditors on a level playing field without undermining
any additional consumer protections in the states.
Although many states cap rates for some forms of credit,
banks can undermine these protections by exporting their weak
home-state limits on credit costs to other states across the
country. It is vitally important for Congress to set the
outside limit on the cost-of-credit to curb abusive lending.
We enthusiastically support the Protecting Consumers from
Unreasonable Credit Rates Act of 2013. For more information,
please contact Tom Feltner, director of financial services,
Consumer Federation of America at (202) 618-0310 or
[email protected].
Sincerely,
Alabama Appleseed, Alabama Arise, Americans for Financial
Reform, Arkansans Against Abusive Payday Lending, Arkansas
Community Organizations, California Reinvestment Coalition,
Southwest Center for Economic Integrity (AZ), Center for
Responsible Lending, Citizen Action Illinois, Coalition of
Religious Communities (Utah), Consumer Action, Consumer
Assistance Council, Inc. (MA).
Consumer Federation of America, Consumers for Auto
Reliability and Safety (CA), Consumers Union, Economic
Fairness Oregon, Demos, Green America, Florida Consumer
Action Network, Jesuit Social Research Institute, Loyola
University, New Orleans Kentucky Coalition for Responsible
Lending, Mississippi Center for Justice, Monsignor John Egan
Campaign for Payday Loan Reform (IL), NAACP.
National Association of Consumer Advocates, National
Community Reinvestment Coalition, National Consumer Law
Center, on behalf of its low income clients, National
People's Action, Neighborhood Economic Development Advocacy
Project (NY), New Jersey Citizen Action, Maryland CASH
Campaign, Maryland Consumer Rights Coalition, Project IRENE
(IL), RAISE Kentucky, Reinvestment Partners (NC), Sargent
Shriver National Center on Poverty Law (IL), South Carolina
Appleseed Legal Justice Center, Southern Poverty Law Center,
Virginia Citizens Consumer Council, Virginia Poverty Law
Center, Woodstock Institute (IL).
Mr. DURBIN. Mr. President, we can allow American consumers today to
keep more of their hard-earned money by establishing a reasonable fee
and an annual interest rate cap, combating abuses by Internet payday
lenders, and eliminating bank payday loans. Families and their
communities are sure to benefit by saving more and putting more of
their earnings back into the economy.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:
S. 673
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Protecting Consumers from
Unreasonable Credit Rates Act of 2013''.
SEC. 2. FINDINGS.
Congress finds that--
(1) attempts have been made to prohibit usurious interest
rates in America since colonial times;
(2) at the Federal level, in 2006, Congress enacted a
Federal 36 percent annualized usury cap for service members
and their families for covered credit products, as defined by
the Department of Defense, which curbed payday, car title,
and tax refund lending around military bases;
(3) notwithstanding such attempts to curb predatory
lending, high-cost lending persists in all 50 States due to
loopholes in State laws, safe harbor laws for specific forms
of credit, and the exportation of unregulated interest rates
permitted by preemption;
(4) due to the lack of a comprehensive Federal usury cap,
consumers annually pay approximately $23,700,000,000 for
high-cost overdraft loans, as much as $8,100,000,000 for
storefront and online payday loans, and additional amounts in
unreported revenues from bank direct deposit advance loans
and high-cost online installment loans;
(5) cash-strapped consumers pay on average 400 percent
annual interest for payday loans, 300 percent annual interest
for car title loans, up to 3,500 percent for bank overdraft
loans, and triple-digit rates for online installment loans;
(6) a national maximum interest rate that includes all
forms of fees and closes all loopholes is necessary to
eliminate such predatory lending; and
(7) alternatives to predatory lending that encourage small
dollar loans with minimal or no fees, installment payment
schedules, and affordable repayment periods should be
encouraged.
SEC. 3. NATIONAL MAXIMUM INTEREST RATE.
Chapter 2 of the Truth in Lending Act (15 U.S.C. 1631 et
seq.) is amended by adding at the end the following:
``SEC. 140B. MAXIMUM RATES OF INTEREST.
``(a) In General.--Notwithstanding any other provision of
law, no creditor may make an extension of credit to a
consumer with respect to which the fee and interest rate, as
defined in subsection (b), exceeds 36 percent.
``(b) Fee and Interest Rate Defined.--
``(1) In general.--For purposes of this section, the fee
and interest rate includes all charges payable, directly or
indirectly, incident to, ancillary to, or as a condition of
the extension of credit, including--
``(A) any payment compensating a creditor or prospective
creditor for--
``(i) an extension of credit or making available a line of
credit, such as fees connected with credit extension or
availability such as numerical periodic rates, annual fees,
cash advance fees, and membership fees; or
``(ii) any fees for default or breach by a borrower of a
condition upon which credit was extended, such as late fees,
creditor-imposed not sufficient funds fees charged when a
borrower tenders payment on a debt with a check drawn on
insufficient funds, overdraft fees, and over limit fees;
``(B) all fees which constitute a finance charge, as
defined by rules of the Bureau in accordance with this title;
``(C) credit insurance premiums, whether optional or
required; and
``(D) all charges and costs for ancillary products sold in
connection with or incidental to the credit transaction.
``(2) Tolerances.--
``(A) In general.--With respect to a credit obligation that
is payable in at least 3 fully amortizing installments over
at least 90 days, the term `fee and interest rate' does not
include--
``(i) application or participation fees that in total do
not exceed the greater of $30 or, if there is a limit to the
credit line, 5 percent of the credit limit, up to $120, if--
``(I) such fees are excludable from the finance charge
pursuant to section 106 and regulations issued thereunder;
``(II) such fees cover all credit extended or renewed by
the creditor for 12 months; and
``(III) the minimum amount of credit extended or available
on a credit line is equal to $300 or more;
``(ii) a late fee charged as authorized by State law and by
the agreement that does not exceed either $20 per late
payment or $20 per month; or
``(iii) a creditor-imposed not sufficient funds fee charged
when a borrower tenders payment on a debt with a check drawn
on insufficient funds that does not exceed $15.
``(B) Adjustments for inflation.--The Bureau may adjust the
amounts of the tolerances established under this paragraph
for inflation over time, consistent with the primary goals of
protecting consumers and ensuring that the 36 percent fee and
interest rate limitation is not circumvented.
``(c) Calculations.--
``(1) Open end credit plans.--For an open end credit plan--
``(A) the fee and interest rate shall be calculated each
month, based upon the sum of all fees and finance charges
described in subsection (b) charged by the creditor during
the preceding 1-year period, divided by the average daily
balance; and
``(B) if the credit account has been open less than 1 year,
the fee and interest rate shall be calculated based upon the
total of all fees and finance charges described in subsection
(b)(1) charged by the creditor since the plan was opened,
divided by the average daily balance, and multiplied by the
quotient of 12 divided by the number of full months that the
credit plan has been in existence.
``(2) Other credit plans.--For purposes of this section, in
calculating the fee and interest rate, the Bureau shall
require the method of calculation of annual percentage rate
specified in section 107(a)(1), except that the amount
referred to in that section 107(a)(1) as the `finance charge'
shall include all fees, charges, and payments described in
subsection (b)(1) of this section.
``(3) Adjustments authorized.--The Bureau may make
adjustments to the calculations in paragraphs (1) and (2),
but the primary goals of such adjustment shall be to protect
consumers and to ensure that the 36 percent fee and interest
rate limitation is not circumvented.
``(d) Definition of Creditor.--As used in this section, the
term `creditor' has the same meaning as in section 702(e) of
the Equal Credit Opportunity Act (15 U.S.C. 1691a(e)).
``(e) No Exemptions Permitted.--The exemption authority of
the Bureau under section 105 shall not apply to the rates
established under this section or the disclosure requirements
under section 127(b)(6).
``(f) Disclosure of Fee and Interest Rate for Credit Other
Than Open End Credit Plans.--In addition to the disclosure
requirements under section 127(b)(6), the Bureau may
prescribe regulations requiring disclosure of the fee and
interest rate established under this section.
``(g) Relation to State Law.--Nothing in this section may
be construed to preempt any provision of State law that
provides greater protection to consumers than is provided in
this section.
``(h) Civil Liability and Enforcement.--In addition to
remedies available to the consumer under section 130(a), any
payment compensating a creditor or prospective creditor, to
the extent that such payment is a transaction made in
violation of this section, shall be null and void, and not
enforceable by any party in any court or alternative dispute
resolution forum, and the creditor or any subsequent holder
of the obligation shall
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promptly return to the consumer any principal, interest,
charges, and fees, and any security interest associated with
such transaction. Notwithstanding any statute of limitations
or repose, a violation of this section may be raised as a
matter of defense by recoupment or setoff to an action to
collect such debt or repossess related security at any time.
``(i) Violations.--Any person that violates this section,
or seeks to enforce an agreement made in violation of this
section, shall be subject to, for each such violation, 1 year
in prison and a fine in an amount equal to the greater of--
``(1) 3 times the amount of the total accrued debt
associated with the subject transaction; or
``(2) $50,000.
``(j) State Attorneys General.--An action to enforce this
section may be brought by the appropriate State attorney
general in any United States district court or any other
court of competent jurisdiction within 3 years from the date
of the violation, and such attorney general may obtain
injunctive relief.''.
SEC. 4. DISCLOSURE OF FEE AND INTEREST RATE FOR OPEN END
CREDIT PLANS.
Section 127(b)(6) of the Truth in Lending Act (15 U.S.C.
1637(b)(6)) is amended by striking ``the total finance charge
expressed'' and all that follows through the end of the
paragraph and inserting ``the fee and interest rate,
displayed as `FAIR', established under section 141.''.
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